Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

<p>It is the chunky corporate loans that are most bothersome to banks, as an economy slows.</p><p>This is one reason that risk-weightings tend to be fairly high for these compared with traditional retail mortgage loans.</p><p><em>Seasoning</em> refers to if a loan has been tried and tested; If it has withstood an economic downturn.</p><p>A default becomes more likely in year two or three of a loan facility, if the business plan is not &nbsp;on track, rather than the first year of the loan's life.</p><p>In this note we examine the size of banks unseasoned corporate loan book, comparing Chinese banks and Australian banks.&nbsp;</p><p>If indeed the economy in China is as weak as the PBOC&rsquo;s actions suggest, or simply as weak as much of the macro/micro data reveals, then those&nbsp;banks with a high proportion of unseasoned corporate loans could see bad loan ratios rise exponentially over the coming 24 months, as corporate business plans fail.</p><p>More below the fold.....</p>

It is the chunky corporate loans that are most bothersome to banks, as an economy slows.This is one reason that risk-weightings tend to be fairly high for these compared with traditional retail mortgage loans.Seasoning refers to if a loan has been tried and tested; If it has withstood an economic downturn.A default becomes more likely in year two or three of a loan facility, if the business plan is not &nbsp;on track, rather than the first year of the loan's life.In this note we examine the size of banks unseasoned corporate loan book, comparing Chinese banks and Australian banks.&nbsp;If indeed the economy in China is as weak as the PBOC&rsquo;s actions suggest, or simply as weak as much of the macro/micro data reveals, then those&nbsp;banks with a high proportion of unseasoned corporate loans could see bad loan ratios rise exponentially over the coming 24 months, as corporate business plans fail.More below the fold.....

Corporate Loan Seasoning in Chinese and Australian Banks

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

iShares MSCI Australia / Equity Bottom-Up

<ul><li>In the second weekly wrap of top-down and bottom-up developments during Australia&rsquo;s reporting season, Evidente discusses the PBOC&rsquo;s rationale for devaluing the CNY/USD rate.&nbsp; Although it confirms that the authorities remain concerned about the state of the economy, this in itself is hardly new news.&nbsp; The peg to the dollar had effectively seen the yuan appreciate by 25% on a trade weighted basis over the past four years, and the devaluation now returns the yuan to the level that prevailed in late 2014, hardly a harbinger of a currency war.&nbsp; The PBOC is right to seek to re-align the currency with the economy&rsquo;s shortfall in aggregate demand. &nbsp;</li><li>In stock news for Australia, I suggest that investors avoid Realestate.com in the short-term because APRA&rsquo;s macro-prudential policies should to lead to a slowdown in credit growth to housing investors, which has been driving housing turnover and real estate listings higher.&nbsp; And a key lesson from Ansell&rsquo;s earnings miss is that investors need to beware that other globally dispersed, complex firms could also deliver an untimely earnings torpedo.</li></ul>

In the second weekly wrap of top-down and bottom-up developments during Australia&rsquo;s reporting season, Evidente discusses the PBOC&rsquo;s rationale for devaluing the CNY/USD rate.&nbsp; Although it confirms that the authorities remain concerned about the state of the economy, this in itself is hardly new news.&nbsp; The peg to the dollar had effectively seen the yuan appreciate by 25% on a trade weighted basis over the past four years, and the devaluation now returns the yuan to the level that prevailed in late 2014, hardly a harbinger of a currency war.&nbsp; The PBOC is right to seek to re-align the currency with the economy&rsquo;s shortfall in aggregate demand. &nbsp;In stock news for Australia, I suggest that investors avoid Realestate.com in the short-term because APRA&rsquo;s macro-prudential policies should to lead to a slowdown in credit growth to housing investors, which has been driving housing turnover and real estate listings higher.&nbsp; And a key lesson from Ansell&rsquo;s earnings miss is that investors need to beware that other globally dispersed, complex firms could also deliver an untimely earnings torpedo.

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
​
More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

<p><em><strong>&lsquo;Pay no attention to that man behind the curtain&rsquo;</strong>&nbsp;</em><em>- Wizard of Oz</em></p><p>The nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.</p><p>The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to <strong>illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.</strong></p>

&lsquo;Pay no attention to that man behind the curtain&rsquo;&nbsp;- Wizard of OzThe nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.

CHINA: Reform & Omnipotence Myths Dispelled

<div><div><div>Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.</div><div>&nbsp;</div><div>I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.</div><div>&nbsp;</div></div></div><div><div><strong>It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.</strong></div></div>

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.&nbsp;I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.&nbsp;It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

<p>For many years now, there has been a perception that the banks of Australia and Canada are similar. This stems from the resource-rich nature of each country.</p><p>It may also arise from the exceptional long-term credit ratings for both countries: AAA on Fitch and Aaa on Moodys. &nbsp;Of course this was brought to the fore with the onset of the Global Financial Crisis (GFC) in 2008 and followed by many downgrades.&nbsp;</p><p>Another basis for this may be the fact that the top four banks in each country account for a high 66% (Canada) to 76% (Australia) of total bank system assets. To us though, there remain critical differences that favour Australia, and their banks. First and foremost is public debt to GDP.</p><p>More below the fold....&nbsp;</p>

For many years now, there has been a perception that the banks of Australia and Canada are similar. This stems from the resource-rich nature of each country.It may also arise from the exceptional long-term credit ratings for both countries: AAA on Fitch and Aaa on Moodys. &nbsp;Of course this was brought to the fore with the onset of the Global Financial Crisis (GFC) in 2008 and followed by many downgrades.&nbsp;Another basis for this may be the fact that the top four banks in each country account for a high 66% (Canada) to 76% (Australia) of total bank system assets. To us though, there remain critical differences that favour Australia, and their banks. First and foremost is public debt to GDP.More below the fold....&nbsp;

Australia's Bank's Fare Well vs. Those in Canada

Australia

National Australia Bank Limited is an international banking group which operates in Australia, New Zealand, Europe, Asia and the United States.  The Group offers banking services, credit and access card facilities, leasing, housing and general finance, international and investment banking, wealth and funds management, life insurance and custodian, trustee and nominee services.

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National Australia Bank (NAB AU)

Corporate Loan Seasoning in Chinese and Australian Banks

It is the chunky corporate loans that are most bothersome to banks, as an economy slows.This is one reason that risk-weightings tend to be fairly...

Daniel Tabbush

Weekly Impressions

In the second weekly wrap of top-down and bottom-up developments during Australia’s reporting season, Evidente discusses the PBOC’s rationale for...

Sam Ferraro

CHINA: Reform & Omnipotence Myths Dispelled

‘Pay no attention to that man behind the curtain’ - Wizard of OzThe nature and scale of Beijing’s reaction to the bursting of the China equity...

John-Paul Smith

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche...

John-Paul Smith

Australia's Bank's Fare Well vs. Those in Canada

For many years now, there has been a perception that the banks of Australia and Canada are similar. This stems from the resource-rich nature of...

Daniel Tabbush

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